What Will Burst the Next Bubble?

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BeerTooth
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Re: What Will Burst the Next Bubble?

Post by BeerTooth » Wed May 17, 2017 7:57 am

My conjecture: wealth inequality. When the people on the bottom of the pyramid decide they're done asking nicely and waiting patiently for a more equitable portion of the national abundance, they could grind the political and economic system to a halt in a matter of days.

timmy
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Re: What Will Burst the Next Bubble?

Post by timmy » Wed May 17, 2017 7:59 am

My POV ... It's foolish to (try to) predict exactly how a drunk driver will crash his/ her car exactly. It makes more sense to say that a drunk driver is more likely to get into an accident. And when an accident happens, many outcomes are possible (fender bender to multiple deaths).

I think of a rich market the same way. A rich market is more likely to suffer (more severe) drops. It's foolish to predict the exact course of events.

This analogy breaks quickly. You can manage the first risk by just not drinking and driving. The second risk (rich markets) is more complicated - and so much has been written on it.

kd2008
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Re: What Will Burst the Next Bubble?

Post by kd2008 » Wed May 17, 2017 8:07 am

There may not be a bubble to burst. We had (sizeable) corrections in 2011 and 2015. If tax reform fails, there may be another one.

There is no point in waiting for something to happen. Follow your IPS and stay the course. Focus on living life instead of dry powder and other not so useful mental accounting frameworks.

Valuethinker
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Re: What Will Burst the Next Bubble?

Post by Valuethinker » Wed May 17, 2017 8:32 am

TylerDavis wrote:My conjecture: wealth inequality. When the people on the bottom of the pyramid decide they're done asking nicely and waiting patiently for a more equitable portion of the national abundance, they could grind the political and economic system to a halt in a matter of days.
History says this doesn't end smoothly or pleasantly.

Wars. Civil wars. Consider the end of the Roman Republic (Optimates v. Populares, Gracchi brothers etc.).

Demagogues rise to power. Whatever their stated aims about making things better, they often wind up making things worse (more unequal).

One could argue that the period 1932 to about 1977 in Western democracies was unique, in that Labour took a huge amount of rewards from Capital, without much overt civic disruption (i.e. defining WW2 etc. as external to that)*. This wasn't all bad for equities (although from the Crisis in 1929-1931, stocks had fallen to very low levels) although the period 1966-1980 most certainly was.

Marc Levinson has a book out on the period of the 1970s and early 80s. The depressing conclusion is that the growth in productivity, and hence standards of living, of the 1945-1972 period was unique in history, and probably cannot be repeated. It allowed one part of society (the average worker) to do well without imposing huge transfers on other parts-- the homes of the wealthy were not sacked, although they did get converted into museums and condominiums ;-). None of the different approaches offered since has restored productivity growth (except for a brief burst in the late 1990s).

It's not as good as his history of container shipping (The Box) which was exceptional, but it's worth a read nonetheless.

https://www.amazon.com/Extraordinary-Ti ... 0465061982

Robert Gordon's book on American standards of living makes similar conclusions, is more scholarly.

* I think the Great Depression, WW2 and the Cold War played a big role in all this, though. The Depression left a generations long searing memory and a "never again" mentality, plus the memory amongst elites of what real popular unrest looked like, and what real poverty looked like. WW2 required unprecedented mobilization and state control of life amongst the Allied Powers- -conscription, full employment, price controls, restrictions on personal consumption/ rationing etc. Britain was definitely run as a socialist state, and the US and Canada came close. The Cold War then kept that state of wartime fervor in place-- huge defence budgets (more than 10% of GDP in the 1950s), full employment**, industries tightly tied to the State (aerospace in particular-- aircraft and then space exploration, civilian nuclear power, electronics etc.), the US Interstate Highways (the largest construction project in American history) etc.).

** it was labour shortages, and the demands of the US Army trying to fight a modern war in an undeveloped country, that created the first big market for containerized shipping-- to supply an army that rose from zero to 550k from the beaches of Da Nang. The problem with containerization had always been the chicken-and-egg one: no shipping company would order the container ships without the ports to unload them, no port facilities were created without container ships to use them.

Containerization is a leading candidate for the single innovation which most transformed the world in the period 1945 to 1980. In the long run computers, internet etc. might transform it more, but in terms of the raw ability of the economy to deliver cheap goods-- sea transportation costs fell by something like 90%+ in 25 years.

Valuethinker
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Re: What Will Burst the Next Bubble?

Post by Valuethinker » Wed May 17, 2017 8:36 am

kd2008 wrote:There may not be a bubble to burst. We had (sizeable) corrections in 2011 and 2015. If tax reform fails, there may be another one.

There is no point in waiting for something to happen. Follow your IPS and stay the course. Focus on living life instead of dry powder and other not so useful mental accounting frameworks.
This is very good advice.

The old Chinese adage "Good news. Bad news. Who knows?" is true of almost any political or economic news.

For example the period 1996-2000 was a fantastic time for the USA in terms of adoption of new technology, exciting new companies (how did we live before we could order virtually any book from Amazon, and have it on our doorstep within 3-4 weeks, and often within 2 days?). However it also set the seeds for a nasty bear market 2000- March 03, which was long and bloody.

BeerTooth
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Re: What Will Burst the Next Bubble?

Post by BeerTooth » Wed May 17, 2017 8:40 am

Valuethinker wrote:
TylerDavis wrote:My conjecture: wealth inequality. When the people on the bottom of the pyramid decide they're done asking nicely and waiting patiently for a more equitable portion of the national abundance, they could grind the political and economic system to a halt in a matter of days.
History says this doesn't end smoothly or pleasantly.

Wars. Civil wars. Consider the end of the Roman Republic (Optimates v. Populares, Gracchi brothers etc.).

Demagogues rise to power. Whatever their stated aims about making things better, they often wind up making things worse (more unequal).

One could argue that the period 1932 to about 1977 in Western democracies was unique, in that Labour took a huge amount of rewards from Capital, without much overt civic disruption (i.e. defining WW2 etc. as external to that)*. This wasn't all bad for equities (although from the Crisis in 1929-1931, stocks had fallen to very low levels) although the period 1966-1980 most certainly was.

Marc Levinson has a book out on the period of the 1970s and early 80s. The depressing conclusion is that the growth in productivity, and hence standards of living, of the 1945-1972 period was unique in history, and probably cannot be repeated. It allowed one part of society (the average worker) to do well without imposing huge transfers on other parts-- the homes of the wealthy were not sacked, although they did get converted into museums and condominiums ;-). None of the different approaches offered since has restored productivity growth (except for a brief burst in the late 1990s).

It's not as good as his history of container shipping (The Box) which was exceptional, but it's worth a read nonetheless.

https://www.amazon.com/Extraordinary-Ti ... 0465061982

Robert Gordon's book on American standards of living makes similar conclusions, is more scholarly.

* I think the Great Depression, WW2 and the Cold War played a big role in all this, though. The Depression left a generations long searing memory and a "never again" mentality, plus the memory amongst elites of what real popular unrest looked like, and what real poverty looked like. WW2 required unprecedented mobilization and state control of life amongst the Allied Powers- -conscription, full employment, price controls, restrictions on personal consumption/ rationing etc. Britain was definitely run as a socialist state, and the US and Canada came close. The Cold War then kept that state of wartime fervor in place-- huge defence budgets (more than 10% of GDP in the 1950s), full employment**, industries tightly tied to the State (aerospace in particular-- aircraft and then space exploration, civilian nuclear power, electronics etc.), the US Interstate Highways (the largest construction project in American history) etc.).

** it was labour shortages, and the demands of the US Army trying to fight a modern war in an undeveloped country, that created the first big market for containerized shipping-- to supply an army that rose from zero to 550k from the beaches of Da Nang. The problem with containerization had always been the chicken-and-egg one: no shipping company would order the container ships without the ports to unload them, no port facilities were created without container ships to use them.

Containerization is a leading candidate for the single innovation which most transformed the world in the period 1945 to 1980. In the long run computers, internet etc. might transform it more, but in terms of the raw ability of the economy to deliver cheap goods-- sea transportation costs fell by something like 90%+ in 25 years.
Wholeheartedly agree on the unique labor/capital truce in the mid-century. Thanks for the book references, I'll add them to the reading list.

So do you think we are likely headed towards a more historically-precedented (non-peaceful) wealth-redistribution phase?

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nisiprius
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Re: What Will Burst the Next Bubble?

Post by nisiprius » Wed May 17, 2017 9:35 am

junior wrote:...As far as I can tell the market can go 15 to 20 years between major crashes...
Don't be fooled. "How risky are stocks?" is an endlessly-debated question, and people on both sides engage in spin... and do not forget that three different industries--banks, insurance companies, and investment firms--battle for your money, and the investment industry as a whole wants to sell their relatively risky products and have an interest in talking down and minimizing the risk of what they sell.

Yes, the market can go 15 to 20 years between major crashes, but--using the dates and definitions from 2015 Ibbotson SBBI Classic Yearbook
p. 172 table 13-4--the crash of 1929 ended in November 1936, to be followed by a 49.93% crash--that is to say, just about as bad as 2008-2009--that began in... February, 1937! That is, only three months between crashes. Some who bought in 1929 had a three month opportunity to sell and get back to even before a second eight-year bear market set in. It is a curious thing that, in terms of history, most people realize that the Great Depression of course lasted more than seven years... and yet, in terms of the stock market, few people realize that there was a second crash in 1937.

Perhaps more to the point, because you don't have to be terribly old to remember it, the dot-bomb crash of 2000, which bottomed out about 2002-3, was followed by the financial-system crash of 2008-2009, bottoming in 2009... so, about six years between major 50%-decline crashes.
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wrongfunds
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Re: What Will Burst the Next Bubble?

Post by wrongfunds » Wed May 17, 2017 9:43 am

Demagogues rise to power. Whatever their stated aims about making things better, they often wind up making things worse (more unequal).
I thought we are not allowed to discuss current politics in this forum.

Valuethinker
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Re: What Will Burst the Next Bubble?

Post by Valuethinker » Wed May 17, 2017 9:46 am

wrongfunds wrote:
Demagogues rise to power. Whatever their stated aims about making things better, they often wind up making things worse (more unequal).
I thought we are not allowed to discuss current politics in this forum.
Hi. I was thinking of people like Mussolini and Hitler. i.e. historical figures. Or some of the Roman and Greek dictators. From a historical perspective it would be far too early to tell if more recent leaders were "demagogues".

For example, whereas at the time Eisenhower was perhaps seen as a conservative, I think most historians would now define him differently-- avoidance of overseas commitments, rejection of the proposed huge military buildup, commitment to higher education post Sputnik, Interstate Highway System was probably the greatest US government project of the postwar years, etc. Kennedy and Johnson have both had significant reappraisals.

Apologies if I have overstepped the line.
Last edited by Valuethinker on Wed May 17, 2017 10:02 am, edited 2 times in total.

IlliniDave
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Re: What Will Burst the Next Bubble?

Post by IlliniDave » Wed May 17, 2017 9:47 am

I think the media will burst the bubble. We've seen what they can/will do to undermine a situation they don't favor. Once they get their sites on Wall Street, they will crush the markets. How's that for a cynical outlook?
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Valuethinker
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Re: What Will Burst the Next Bubble?

Post by Valuethinker » Wed May 17, 2017 9:48 am

TylerDavis wrote: Wholeheartedly agree on the unique labor/capital truce in the mid-century. Thanks for the book references, I'll add them to the reading list.

So do you think we are likely headed towards a more historically-precedented (non-peaceful) wealth-redistribution phase?
It's really impossible to know. Despite all the intimations of historical inevitability, if Archduke Franz Ferdinand's driver had not gone down the wrong road at Sarajevo, and reversed, then Gavrilo Princip would not have been at the right place to fire the revolver that day in 1914. 38 days later Europe was in a war whose consequences are still strongly felt today.

WW1 might not have happened. Or not happened in the way it did. And so maybe not the Russian Revolution and World War 2. And so not the division of Europe and the Cold War.

One can observe what the issues are, but time and historical chance mean that the past is an imperfect or false mirror of the future.
Last edited by Valuethinker on Wed May 17, 2017 9:56 am, edited 1 time in total.

Valuethinker
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Re: What Will Burst the Next Bubble?

Post by Valuethinker » Wed May 17, 2017 9:50 am

IlliniDave wrote:I think the media will burst the bubble. We've seen what they can/will do to undermine a situation they don't favor. Once they get their sites on Wall Street, they will crush the markets. How's that for a cynical outlook?
If by media you mean Facebook and Google, then maybe.

If by media you mean newspapers-tv stations- radio etc., well, they've got their own problems. Traditional media is in a meltdown. People get their news from stories on Facebook and links Google serves up, not from reading the Washington Wall Street Times or watching David Brinkley-Cronkite. Well less than half of Americans watch a nightly news show*? Maybe TV holding out the best, but even there the tectonic plates will crush people.

* I remember some figure that in 1968 it was c. 90%?

Valuethinker
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Re: What Will Burst the Next Bubble?

Post by Valuethinker » Wed May 17, 2017 10:05 am

nisiprius wrote:
junior wrote:...As far as I can tell the market can go 15 to 20 years between major crashes...
Don't be fooled. "How risky are stocks?" is an endlessly-debated question, and people on both sides engage in spin... and do not forget that three different industries--banks, insurance companies, and investment firms--battle for your money, and the investment industry as a whole wants to sell their relatively risky products and have an interest in talking down and minimizing the risk of what they sell.

Yes, the market can go 15 to 20 years between major crashes, but--using the dates and definitions from 2015 Ibbotson SBBI Classic Yearbook
p. 172 table 13-4--the crash of 1929 ended in November 1936, to be followed by a 49.93% crash--that is to say, just about as bad as 2008-2009--that began in... February, 1937! That is, only three months between crashes. Some who bought in 1929 had a three month opportunity to sell and get back to even before a second eight-year bear market set in. It is a curious thing that, in terms of history, most people realize that the Great Depression of course lasted more than seven years... and yet, in terms of the stock market, few people realize that there was a second crash in 1937.
A bit like some of the more recent fluctuations in Japan which have been vertiginous. By 1937, most individuals probably no longer had any interest in the stock market. A whole generation learned to keep its savings in banks, or government bonds.

Perhaps more to the point, because you don't have to be terribly old to remember it, the dot-bomb crash of 2000, which bottomed out about 2002-3, was followed by the financial-system crash of 2008-2009, bottoming in 2009... so, about six years between major 50%-decline crashes.
Bottomed out the first one in March 2003. The second in March-April 2009. So almost exactly 6 years.

ahmadcpa
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Re: What Will Burst the Next Bubble?

Post by ahmadcpa » Wed May 17, 2017 10:40 am

If you look at the most recent three or four stock market crashes, you can see a that for every crash, there was that one thing that went wrong that caused all to bottom down.

In the early 2000s, it was the dot com burst. In the late 2000s, it was caused by the subprime mortgages. There were a few more before but they were there for a short period of time such as Black Monday in the late 1980s and the Iraq war in 1990. Going back earlier is too far out in the past, things changed drastically since that time.

I would say that based on the historical bursts, only the recent two were long-term, the dot com and the subprime problem. We all know that the market now is doing well because of one thing and one thing only (I am going to get some heat from you about this) which is the low interest rates.

These interest rates have never been so low. So low that these companies are getting variable interest rate loans marketed on daily basis at little to zero interest rates. This all was caused by multiple steps that federal government took to entice the economy such as printing money through quantitative easing and foreign cash inflows from Asia and other oil rich counties.

You have too much cash and low interest rates...what do you think will end up happening?

Inflation!!!!

Inflation tends to not impact the stock market significantly but that nest egg with a million or two in it will not be enough to buy those expensive goods or services you were buy for half price before.

IlliniDave
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Re: What Will Burst the Next Bubble?

Post by IlliniDave » Wed May 17, 2017 11:07 am

Valuethinker wrote:
IlliniDave wrote:I think the media will burst the bubble. We've seen what they can/will do to undermine a situation they don't favor. Once they get their sites on Wall Street, they will crush the markets. How's that for a cynical outlook?
If by media you mean Facebook and Google, then maybe.

If by media you mean newspapers-tv stations- radio etc., well, they've got their own problems. Traditional media is in a meltdown. People get their news from stories on Facebook and links Google serves up, not from reading the Washington Wall Street Times or watching David Brinkley-Cronkite. Well less than half of Americans watch a nightly news show*? Maybe TV holding out the best, but even there the tectonic plates will crush people.

* I remember some figure that in 1968 it was c. 90%?
Social media might well be the ultimate delivery mechanism, but I don't think it will be the source of the narrative. Of course my prediction and a 5-dollar bill is worth about 3 bucks. :)
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Roguejim
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Re: What Will Burst the Next Bubble?

Post by Roguejim » Wed May 17, 2017 11:32 am

Staying the course when you're still going to be employed 20-30 years is one thing. My retirement is in 6 years. I have a 40/60 allocation, but still feeling the squeeze! A tough spot.

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Re: What Will Burst the Next Bubble?

Post by LadyGeek » Wed May 17, 2017 3:42 pm

Several off-topic posts have been removed (conjecture on politics). This thread has run its course and is locked (not actionable). As a reminder, see: Unacceptable Topics
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